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The Basics of When You Should Apply for Private Student Loans

It should be noted that there are a number of considerations that go into deciding how to finance a college education. And we understand that choosing to borrow money for college can be stressful and involves a lot of thought and deliberation. Here are some things to consider:

  • Review your options to pay for your college costs, including:
    • Personal savings (including 529 plans)
    • Gift aid (think grants and scholarships)
    • Tuition payment plans offered through your school
    • Income from employment
  • Student loans should be considered your last resort option
  • If you still need additional assistance, consider your loan options by comparing your federal student loan and private student loan options according to:
    • Loan terms and conditions
    • Fees
    • Interest rates
    • Repayment benefit (like flexible plans and options of discharge/forgiveness)
  • If you have not already done so, have a talk with your financial aid office to ensure you’ve truly exhausted all other forms of aid before taking out a private loan.

 

What are the Best Private Student Loans?

The best private student loans are those that:

  • Offer low fees (starting with zero origination fees)
  • Provide competitive interest rates
  • Supplement your other financial aid to meet the total cost of your education
  • Help pay for undergraduate, graduate school, and professional degrees, as well as career training
  • Cover any education-related expense, including books and computers
  • Aid in building your credit — especially with a creditworthy cosigner
  • Make a cosigner release available
  • Provide flexible repayment options

 

What to Keep in Mind

When you consider the value of a college education — including the fact that average lifetime earnings for USA college graduates are nearly $1 million more than individuals with only a high school diploma or GED — student loans may be a smart investment. If you budget properly and have a good sense of the actual amount of money you need in loan funds to supplement other forms of aid as well as your resources, you can limit your overall indebtedness by borrowing only what you truly need. You should also consider the fact that there are no prepayment penalties.

Here are some simple tips to help you pay the least over of the life of your loan:

Pay your loan while you’re in school to reduce the amount of interest you will repay over the life of your loan, you have two options:

  • Making interest-only payments to avoid interest capitalization when you enter repayment (the process where any outstanding interest is added to your principal balance once you enter repayment), or
  • Make small, fixed payments which cover your interest and some of your principal balance.

Accelerate payments (pay more than your monthly minimum) to reduce total interest paid and limiting the amount of time on your repayment

You can discuss your repayment options with your lender. If you are unable to make payments while you are in school, you do have the option to defer repayment on your loan until you are out of school. This option will obviously cost the most money because any unpaid (accrued) interest that is not paid before the end of your grace period will be capitalized — or added — to your outstanding principal balance prior to the start of repayment.

An important consideration is the deferred repayment option means your loan balance at the start of repayment will be higher than what you originally borrowed due to the interest capitalization. Also, don’t let the lack of a sizeable payment stop you from sending even a small contribution to your student loan. As insignificant as it may seem now, even a payment of $10 or $20 a month can help curb the amount of money that would be capitalized on top of your outstanding balance.